U.S. stocks drop; Dow skids nearly 160 points

SaumyaVaishampayan

SAN FRANCISCO (MarketWatch) — U.S. stocks fell sharply on Tuesday hit by growing jitters over the budget impasse in Washington, with the partial government shutdown extending into a second week with few signs of a deal to end it or raise the nation’s debt ceiling.

The Dow Jones Industrial Average
DJIA, -1.24%
dropped 159.71 points, or 1.1%, to close at 14,776.53, after touching an intraday low of 14,773.47. The biggest decliner was Visa Inc.
V, -1.12%
down 2%, with J.P. Morgan Chase & Co.
JPM, -1.56%
and International Business Machines Corp.
IBM, -1.26%
both finishing down about 1.8%.

The S&P 500 index
SPX, -1.54%
fell 20.67 points, or 1.2%, to 1,655.45, extending prior-day losses that pushed the index to a four-week low. The worst performing sectors were telecom, materials, and consumer discretionary. Near the close, the S&P 500 traded as low as 1,655.03.

In a press conference, President Obama said he is happy to negotiate with House Republicans but not under the threat of keeping the government closed or not raising the debt ceiling. “We’re not going to pay a ransom for America paying its bills,” Obama said.

House Speaker John Boehner said Tuesday that Obama and Democrats need to negotiate over the U.S. debt ceiling and shutdown. “I’m not drawing any lines in the sand,” he said in response to whether he wanted a specific amount of debt reduction. Obama and Boehner talked by phone on Tuesday and the president reiterated he will not negotiate over the shutdown or the debt ceiling.

Obama said Monday there are enough votes in the House to pass a debt-ceiling increase and end the shutdown without further concessions from Democrats, rejecting Boehner’s assertion that the votes aren’t there.

The House of Representatives isn’t likely to pass a debt-ceiling increase this week, according to a report in Politico. A failure to raise the debt limit by Oct. 17 would mean the U.S. couldn’t borrow money to pay its bills, triggering an unprecedented default, Treasury Secretary Jack Lew has said.

Reuters

U.S. President Barack Obama is pictured above.

Stocks have been pretty resilient so far during the shutdown. Since the shutdown started on Oct. 1, the Dow industrials are off by 2.3%, the S&P 500 is down 1.6%, and the Nasdaq is off by 2%, with Tuesday’s losses making up a big part of the month-to-date loss.

The continued rhetoric out of Washington is sapping optimism that the shutdown and debt ceiling are going to be resolved by Oct. 17, said Robert Pavlik, chief market strategist at Banyan Partners.

“There’s not a lot of interest to buy when the rhetoric is negative and there’s no soon end to it,” Pavlik said. Also, taking away interest to buy is the S&P 500 dipping below its 100-day average.

Lacking optimism that there will be any resolution in Washington soon, there are very few investors willing to buy on the dips, he said. That waning optimism is having a particularly negative effect on so-called “momentum” stocks such as Facebook Inc.
FB, -1.82%
Priceline.com Inc.
PCLN, -2.30%
and Tesla Motors Inc.
TSLA, -3.03%
Pavlik said. Facebook closed down 6.7%, Priceline fell 4.2%, and Tesla dropped 4.6%.

“Clearly, everyone is waiting to hear some news out of Washington, D.C.,” said Peter Sidoti, chief executive officer of Sidoti & Co. The shutdown “is overshadowing earnings and the underlying economy, which continues to get better,” he said.

Declining stocks outnumbered advancers by more than four to one on the New York Stock Exchange and the Nasdaq. Composite volume topped 3.5 billion shares for NYSE-listed stocks and 2 billion shares for Nasdaq-listed stocks by the close.

A shutdown of a month or longer could prompt a 20% to 30% correction in the stock market, according to strategist Barry Ritholtz. A prolonged government shutdown could also push out expectations for a slowing of the Federal Reserve’s monthly bond purchases, which could support stocks. Economists at Bank of America Merrill Lynch expect a shutdown of two weeks will shave 0.5 percentage points off fourth-quarter GDP.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information.
All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only.
Intraday data delayed at least 15 minutes or per exchange requirements.